United States

We just learned America’s rental affordability crisis is as bad as it has ever been. Unfortunately, it is about to get a whole lot worse. The American Community Survey for 2014, released a few weeks ago, found that the number of renters paying 30% or more of their income on housing – the standard benchmark for what’s considered affordable – reached a new record high of 20.7 million households, up nearly a half-million from the year before. Despite the improving economy, the increase was nearly five times bigger than last year’s gain.

Two developments make a shutdown of the US government on October 1 less likely. First, the outgoing Speaker of the House made it clear he is determined to avoid the government shutdown, and with his resignation (as of the end of October), he is freed from some of the political constraints.

The big question these days is when the Federal Reserve will finally raise its target interest rate for the first time in almost a decade. Its monetary policy committee is meeting this week to decide whether to do just that.

Unfortunately, this is the wrong question. Whether the Fed moves this week or next month will make little difference over time. If it takes too small a step now – or none at all – it can take a bigger step later.

The US dollar and equity futures responded favorably to the stronger than expected durable goods orders. The sizable upward revision in the June shipments (from 0.3% to 0.9%) underscores expectations of an upward revision to Q2 GDP when reported tomorrow.

The US dollar began the new week bid in Asia, but surrendered most of those initial gains before the start of the European session. The lack of fresh news has seen the greenback drift higher in Europe, perhaps waiting for fresh direction from North America.

The US dollar is set to close the week on a strong note. The relatively constructive data is boosting confidence that the Federal Reserve will have the opportunity it has been looking for to begin, however gradual, the normalization of monetary policy. At the same time, the Greece impasse remains, and German Chancellor Merkel has weighed in suggesting that too strong of a euro impedes reforms in Spain and Ireland. This, of course, leads to fresh selling.

Recently the bond rating company Moody’s Investor Service cut their ranking of Chicago to junk status. The move ticked off a lot of people in the Windy City who think Moody’s overstated the case. I agree that Moody’s is wrong… not because they went too far, but because they didn’t go far enough. Chicago is not close to bankrupt. It’s completely bankrupt. People are just afraid to say this out loud.

The US dollar is enjoying firmer tone as the week winds down. It is up against all the major currencies but the Norwegian krone today. This trims the loss for the week. In fact, the roughly 0.7% decline of the New Zealand dollar today, making it the weakest of the majors, is enough to turn it lower on the week. Fonterra lowered its 12-month projections of dairy supply, especially whole milk powder.

The year 2014 was a great year for the United States economy. However, the year 2015 hasn't been the same. While we are still not in dire straits, we're not seeing the consumer spending and job growth that we saw last year. While many experts seem to be brushing the bad data off as healthy trends, I beg to differ. Unfortunately, I think that we may be looking the next major market correction dead in the face if things keep going in the direction they are. Here's why...